A “credit card grace period” is generally the time between the end of one's billing cycle and one's payment due date. Essentially, this window, usually between 20 and 25 days, allows a payment to be made for the prior billing cycle's purchases without accruing any interest on those items. The due date, as noted on the credit card statement, is typically the time when the grace period ends, and after that, one will begin accruing interest on any unpaid portion of one's balance if the annual percentage rate (APR) on the card is greater than 0%. However, if one typically carries a balance on the credit card from month to month and fails to pay the account in full, this grace period is ultimately wiped out in some cases.
Some of the different types of credit card grace periods are described below:
Full Grace Period
This type of grace period allows one to carry a balance from prior billing cycles (each billing cycle typically being a month) and still avoid interest on purchases made during the most recent billing cycle, assuming they are paid off entirely within the 20-25 day window. There will still be interest charged on the portion that is carried over, but new purchases paid for within the grace period that correspond to the latest billing cycle will be interest free. Therefore, if a balance is carried over from a previous billing cycle, but the statement balance is paid in full within the grace period, one will be charged interest on the “average daily balance excluding new purchases,” meaning any balance carried over from previous billing cycles accrues interest by way of average daily balance, with new purchases excluded from this computation. (New purchases are those which are a part of the most recent billing cycle.)
Standard Grace Period
Unfortunately, the above formula is pretty rare, as most credit card issuers charge interest on all purchases immediately if one has a previous outstanding balance. But if the credit card statement balance is paid in full every month, this will work like a full grace period. No interest will be charged as long as the full statement balance payment is made within the allotted time designated by the grace period each month. Therefore, if a balance is carried over from a previous billing cycle, but the statement balance is paid in full within the grace period, one will be charged interest on the “average daily balance including new purchases,” meaning balances carried over from previous months as well as new purchases accrue interest based on the average daily balance computing model. So in this case, any outstanding balance from a prior billing cycle will essentially eliminate one's grace period because any new charges accrue interest immediately.
No Grace Period
There are also situations where this is no grace period whatsoever. Typically, cash advances and convenience checks have no grace period, and as a result, interest begins to accrue the minute one withdraws the funds. This can also be the case with some department store credit cards.
However, even if a borrower pays off the statement balance within the grace period (whether it is a full or standard grace period), there is currently no benefit or credit given to the borrower for not using those interest free grace period days remaining before the end of the grace period.
In this regard, there is a need for systems and methods that overcome the shortcomings described above and others.